Rules changing for gas-fired power plants

Published: May 17, 2006

Lawmakers will make decisions this week and next that could deeply affect the natural gas-fired 720-megawatt Granite Ridge power plant in Londonderry and the 525-megawatt Newington Energy plant on the Seacoast, which uses the same fuel.
A conference committee met Tuesday to debate House bill 1690, a bill that would let Public Service of New Hampshire or others build 60 megawatts of wood-fired power in the Berlin region. Opponents say the bill would roll back the clock on energy deregulation by letting the state’s largest regulated utility increase its production.
A return to the former days of total regulation would hurt both gas plants that sell to the New England spot market. Public Service sells directly to ratepayers through its own power plants and wires with a guaranteed 9.6 return on its investment under law.
The international AES Corp. ate a $200 million loss on its investment in Granite Ridge investment in late 2003. Mistakes like that helped drive down the price of AES stock that winter to $3 a share, from $70 in 2001. Power plants across the country took a beating after September 11th and the collapse of Enron. Worse, the price of natural gas has spiked three- to sixfold above AES projections in the late 1990s.
Susan Geiger, a lobbyist for the banks that now own Granite Ridge, has closely followed HB 1690 for the last several weeks. It has been one of the most heavily lobbied bills this session.
She said allowing PSNH to beef up its generating capacity for the first time in many years would perpetuate an uneven playing field. That is why she is glad the bill as it now stands would allow any company to compete to build a power plant in the North Country.
“The original bill limited it to just PSNH,” she said. “But will letting PSNH expand its portfolio dampen the market? That guarantees one player a profit while the rest are at risk. If they get to expand it might prevent others from coming in.”
The fast-changing bill soon picked up an amendment that forces PSNH to evenly share both its profits and risks with ratepayers. An early version also placed no cap on the total generating capacity PSNH could construct in Coos County.
Both New Hampshire gas plants face a bigger showdown next December, when a new federal energy policy takes effect. For several years, the Federal Energy Regulatory Commission has paid most plants like Granite Ridge just enough outside the daily spot market to cover costs - a tactic designed to help them survive until the market improves.
New England demand for electricity grows each year by 500 to 700 megawatts. When AES bowed out of Londonderry in 2004, the regional power grid had an 8,000-megawatt glut of capacity, but no new plants have come on line for five years.
ISO-New England, which oversees the grid, wants to avoid a series of rolling brownouts and blackouts. If federal rules become final next month, all power plants in New England would take part in a once-a-year bidding war to see which get large payments to stand ready to fire up when the grid needs them.
Ken McDonnell, a spokesman for the grid, said three-fourths of the region’s electricity producers could win. He declined to call the extra payments subsidies, but they will be more competitive than current supplements. The highest-cost suppliers could lose their aid.
“The market price alone is too low for the gas-fired plants to cover their capital costs,” McDonnell said. “It doesn’t encourage the development of new plants either.”
Lawyer Rob Upton represents Londonderry and Newington in dealings with their two power plants. He said the changes could make them at least more economic, if not profitable.
“They’re operating on a pretty regular basis, but the market is still bad for them,” he said. “They can meet the summer peak with good pricing. That’s when they can start up faster than others.”
Londonderry’s assistant tax assessor, Rick Brideau, said the assessed value of Granite Ridge has dropped from $272 million to $238.7 million.
An alliance of international banks led by ABN-AMRO in Holland took over the ailing plant two years ago from AES in an amicable foreclosure. At a PUC hearing, lawyers for AMRO said the creditors would sink another $40 million into the plant to keep it operational for a buyer. - CHRIS DORNIN/GOLDEN DOME NEWS

This article appears in the May 12 2006 issue of New Hampshire Business Review